Ericsson’s Q3 profit drops

The tough market environment is catching up to Ericsson, which reported a 71 percent drop in third-quarter net profit. Network sales in the third quarter declined year-over-year by 8 percent.

The infrastructure leader was early to implement cost cuts and says those activities are running ahead of schedule, with further opportunities for savings, although it didn’t say where.

Ericsson President and CEO Carl-Henric Svanberg said that despite lower volumes, network margins remain stable and strong development in the professional services segment continued.

The global mobile infrastructure market and the credit environment is still tight in several emerging markets, but other markets, including China, India, the United States and Japan, show good development, the company said.

With mobile broadband users and traffic expected to increase dramatically, the company is predictably optimistic about the future. “Mobile telephony is reaching a penetration beyond all expectations. We expect mobile broadband to show a similar exciting development over the years to come, not least as the vast majority of the world's population will be able to reach Internet only through mobile technology," Svanberg said.

Analysts had been looking for signs of a pickup in the global market for network infrastructure. Ericsson's profit decline, while largely being blamed on the company's loss-making joint ventures Sony Ericsson and ST Ericsson, is being seen as the first sign that the global economic crisis is having an effect on the Swedish giant, said IHS Global Insight analyst Peter Boyland in a research note.

The No. 1 worldwide infrastructure vendor has so far proved resilient to the slowdown, largely due to strong contracts with major operators and its focus on Long Term Evolution. “Despite a tough third quarter, Ericsson remains profitable, and the outlook for the vendor looks far more comfortable than for its European rivals,” Boyland said. Its joint ventures remain a burden, he added, and “this is something the vendor needs to urgently address if it is to reverse its fortunes.”